TORONTO, Jan 20 (Reuters) - The Canadian dollar was down
nearly 1 percent versus the U.S. dollar on Tuesday given the
combination of lower commodity prices and a drop in equity
markets overnight that led to safe-haven demand for the
greenback.

The drop in the Canadian dollar comes ahead of the Bank of
Canada's interest rate announcement at 9:00 a.m. (1400 GMT) ,
when the bank is widely expected to cut its key overnight rate
by 50 basis points to 1.00 percent.

At 7:55 a.m. (1255 GMT), the Canadian unit was at C$1.2648
to the U.S. dollar, or 79.06 U.S. cents, down from C$1.2547 to
the U.S. dollar, or 79.70 U.S. cents, at Monday's close.

Canada is a major exporter of oil, so the drop in oil
prices of near 10 percent to below $34 a barrel helped to knock
the domestic currency to its lowest level since Jan. 15.

The Canadian dollar, along with most major currencies, was
also being dragged lower versus the U.S. dollar as a slide in
global equity markets due to fears about the world economy that
made investors seek out the security offered by the greenback.

"It's pretty much a bit of everything," said George Davis,
chief technical strategist at RBC Capital Markets, "There is
not much out there that is really positive for the Canadian
dollar right now."

Earlier, the Canadian dollar fell as low as C$1.2660 to the
U.S. dollar, or 78.99 U.S. cents, which was 0.89 percent down
from Monday's close and its lowest level in nearly one week.

Oil prices had been a key driver in the Canadian currency
and one of the main reasons for its rise above the U.S. dollar
in 2007 when it topped out at just above US$1.10.

So with oil prices more than $110 below the record highs
above $147 a barrel hit last July, an unravelling in the
domestic currency's gains comes as no surprise.

The market has already largely priced in a 50 basis point
rate cut from the Bank of Canada, so it is going to take a more
dramatic announcement or severe change in the central bank's
tone to spark a move in the currency.

"If we happen to get a larger than expected rate cut that
certainly would be a negative factor for the Canadian dollar
and indicate that things might be a little worse than what
people were thinking," said Davis.

"I think it's highly unlikely that we get less than a 50
basis point rate cut, but even if we do I think that if there
is any knee-jerk rally in the Canadian dollar it is likely to
be short-lived because equity markets are still the main
driving factor for the Canadian currency."